On Wednesday, Global X ETFs, the New York-based provider of ETFs, announced the launch of the Global X Adaptive U.S. Risk Management ETF (ONOF). The fund will join the firm’s Core family of ETFs and track the Adaptive Wealth Strategies U.S. Risk Management Index.
Facing a market that is seemingly climbing ever-higher, many investors may be confronted with whether to participate in equity markets or to hold cash in case of a downturn. ONOF seeks to confront this challenge with the dual goals of managing risk during adverse market conditions while maintaining broad equity market exposure under normal market conditions. ONOF will hold broad U.S. equity market exposure during positive market environments, rotating entirely into exposure to U.S. Treasury Obligations when that trend reverses.
The strategy utilizes four market indicators to determine whether it should be in a risk-on or risk-off positioning. Those four indicators include two longer-term measures and two shorter-term ones to avoid the whipsaw effect resulting from only relying on one signal.
As far as longer-term indicators, ONOF has a 200-day moving average that detects market trends and provides stability by muting day-to-day market shifts. The drawdown – the measurement of the market’s absolute decline from the previous market high-potentially identifies a more pronounced downward trend.
Watch The Indicators
For shorter-term indicators, moving average convergence divergence (MACD), which tracks the relationship between moving averages, captures both up and down turning points in the market and is often one of the first technical indicators to recognize when entering a risk-off environment.
And with volatility, ONOF is measured via the VIX, which gauges market uncertainty and often precipitates rising risks.
The strategy requires confirmation from three of the four above factors to exit equity exposure and reallocate to short-term U.S. Treasuries. It will need the confirmation of just two indicators to re-enter the market, opting for a higher barrier to exit the market than entering.
“Throughout the post-2008 bull market, investors have repeatedly seen brief periods of extreme volatility,” said Alex Ashby, Head of Product Development at Global X ETFs. “Many investors, wary of perceived risks, have refrained from entering the market over recent years.”
He continues, “Even those who have maintained their positioning through the downturns faced periods of elevated risk, but are hesitant to make tactical changes to adapt to a changing market landscape. This strategy is designed to provide tactical risk management amid a backdrop of both immense global uncertainty and upward-trending equity markets.”
ONOF marks the second occasion that Global X has partnered with Adaptive Wealth Strategies to introduce an ETF within its Core family. The first strategy, the Global X Adaptive U.S. Factor ETF (AUSF), holds $155 million in assets under management.
For more information, visit www.globalxetfs.com.
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